Is New Hampshire business-friendly or not?

Published: October 22, 2010

Whether New Hampshire's business-friendly climate is more myth than reality has become a heated point of contention in the gubernatorial race.In TV advertisements and debates, Republican John Stephen has repeatedly stated that the state has "the highest business tax rate in the nation." Democratic Gov. John Lynch counters that New Hampshire is ranked as the seventh-most business-friendly state in the nation.If they're both right, what does that mean?The Stephen ad refers to figures from the 2010 State Business Tax Climate report - released annually by the Tax Foundation in Washington, D.C. - which ranks New Hampshire's corporate income tax as the worst in the nation, a 12-spot drop from 2006, when the Granite State ranked 38th.In 2008 - the most recent year for which data is available - corporate tax collections in the state were second-highest in the nation, at $466 per capita.But the report is the very same one that Lynch uses in his response to Stephen's claim.And, according to the report - which compares and ranks all the states in five areas of taxation that impact business - New Hampshire's overall business climate is seventh best in the nation.Nevertheless, whether the so-called "New Hampshire Advantage" - generally defined by the state's low tax burden and quality of life - extends to the state's businesses has become a contentious issue among businesspeople, legislators and economists.High corporate tax rates are in general burdensome for states because of an increasingly global economy, said Scott Hodge, president of the Tax Foundation, at an October 2009 hearing of New Hampshire House Ways and Means Committee.The state's 8.5 percent business profits tax is the 11th-highest nationally among states that levy corporate income taxes, compounded with the added complexity of the business enterprise tax, a tax on a company's total compensation, interest and dividends. (The BPT - which has held steady at 8.5 percent since 2001 - was 7 percent between 1993 and 1999, when it was increased to 8 percent.)"High corporate taxes are a problem for the state because in a global economy, business taxes matter more than ever and the rest of the globe is moving toward lower business taxes," said Hodge. "In other words, when it comes to corporate income taxes, New Hampshire's is one of the highest in the industrialized world."Higher costsDespite that global market, U.S. Department of Labor statistics show that most mass job relocations are from state to state, rather than an overseas location.When compared with the rest of New England, New Hampshire's overall tax ranking stacks up well: Maine ranked 34th, Massachusetts came in 36th and Vermont held firm in the bottom 10, at 41st, in the Tax Foundation rankings.As has been historically the case, many companies are still moving to the state from Massachusetts, as well as California, New Jersey and New York - "very difficult places to do business," said Michael Bergeron, business development manager at the New Hampshire Business Resource Center.But New England and the Northeast are not New Hampshire's main competition, says Jim Roche, president of the Business and Industry Association of New Hampshire."There are companies in our membership that have chosen not to expand here, they've chosen other locations around the country or around the world to grow their business, not in New Hampshire," said Roche, adding that the competition comes from other countries, like Mexico, China, Malaysia and India, and states such as the Carolinas, Texas and Virginia (each of whose overall business tax burdens ranks worse than New Hampshire in the Tax Foundation report).But, according to Bergeron, the state's high corporate income tax is not a major concern to companies considering locating to or staying in New Hampshire, because instead of focusing on an individual category of the business climate, "they look at total cost of occupancy," he said. "The overall cost of business is lower."The state's seventh-best ranking, said Bergeron, demonstrates that the state has a balanced economy that is boosted by its lack of broad-based income tax, use tax, sales tax, capital gains tax and inventory tax.But, said Roche, the state's business climate is not entirely dictated by the taxes it imposes on business. Other factors - including high electricity and health-care costs - contribute to a business climate that is not as friendly as proponents claim, he said.New Hampshire's average property tax burden also is among the highest in the nation, ranking 40th in the foundation report. In fiscal year 2008, combined state and local property taxes were $2,317 per capita in New Hampshire - fourth-highest in the United States - compared to $495 per capita in Alabama.But, said Bergeron, "in many cases, the cost of property taxes aren't that much different between, for example, Massachusetts and New Hampshire." He added that property tax rates in the state do not target business."In New Hampshire, we don't charge a different tax rate for industrial users. You go to some states and they're going to charge some business higher rates just because they are businesses."In 2008, total health-care expenditures in New Hampshire were $8,235 per person, compared with an average of $6,009 per person among the five states with the lowest costs, according to figures from the nonpartisan New Hampshire Center for Public Policy Studies.But the same study found that while New Hampshire's health costs are high, so is the quality of the care, with the state ranking extremely high nationally in quality health care.Electricity costs in the state are also high, as they are in all of New England. According to data from the U.S. Energy Information Administration, in June 2010, the retail price of electricity in New Hampshire averaged 14.63 cents per kilowatt-hour - nearly on par with the New England average of 14.93 cents, making the region the most expensive in the contiguous United States. In Southern and Midwestern states, electricity costs hover between 7 cents and 9 cents per KwH.While high electricity costs may not be a huge impediment to small businesses, they do affect the state's larger businesses - especially manufacturers that have high rates of energy consumption.A recent University of Connecticut study found New Hampshire and two other New England states - Vermont and Rhode Island - to have the three highest manufacturing costs in the nation.What about large businesses?Through a recruitment initiative called "New Hampshire Open Invitation," the state is actively courting businesses from surrounding regions to set up shop in New Hampshire. According to Bergeron, the ability to find the right real estate is the biggest concern companies have when deciding whether to relocate - a concern the Department of Resources and Economic Development has addressed by inviting businesspeople, most recently from Quebec and Massachusetts, to the state and providing lunch, hockey games and limousine tours of the state's available properties.Bergeron said the Business Resource Center helps between 10 and 25 companies a year in relocating to New Hampshire and that the "pipeline is growing" as the economy begins to rebound.But, in general, he said, businesses need little incentive other than the state's low tax burden to choose to remain in or relocate to New Hampshire.Most of the companies relocating are small, family-run businesses, said Bergeron."The companies that generally leave New Hampshire are large national companies that have branch locations here," said Bergeron."(The legislators) do have a small-business consciousness and concern when they talk about business in New Hampshire," said Roche. But when relocating, it's these larger companies that take other business with them - services such as accounting, legal, advertising, lawn care and banking, he added."When a company chooses to expand or relocate to another location that's not New Hampshire, there's a whole bunch of other business that goes with it," said Roche."There doesn't seem to be the same level of concern or interest in the state's larger businesses," said David Juvet, senior vice president of the BIA, "and especially the manufacturing community, which is unfortunate, because that sector of the economy contributes a tremendous amount way disproportionate to their size to the bottom line of the state budget and they are a tremendous source of employment to this state."Kathleen Callahan can be reached at kcallahan@nhbr.com.

This article appears in the October 22 2010 issue of New Hampshire Business Review